PhiMac Seminar - Hassan Chehaitli & Weijie Pang - Network model and Repo market



Speakers: Hassan Chehaitli and Weijie Pang (McMaster University)

Title: Network model and Repo market

Abstract: The financial system is increasingly interconnected. Cyclical interdependencies among corporations may cause that the default of one firm seriously affects other firms and even the whole financial network, which is a systemic risk. To describe the connections between banks, many researchers use the uncollateralized liabilities between two firms to construct financial network models of the systemic risk. However, in practice, there are many collateralized liabilities between banks from the Repurchase Agreement (Repo) Market. Thus it is very important to include the Repo liabilities into the network models. In our research, we apply a Repo liability matrix in network models to quantify the effects of Repo market on the financial stability. We construct a liquid mechanism and a solvency mechanism to describe the effect of various financial shocks on the banking system. In a numerical study based random matrices, we compare the effect of different financial shocks on the whole banking system.
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McMaster University - Faculty of Science | Math & Stats